From the August 2006 issue of Research Magazine • Subscribe!

August 1, 2006

No Summer Break for ETF Industry

June was a record month for publicly offered ETFs. All in all, 42 new funds were added to the mix in one month's time -- an incredible feat, when you consider that Investment Company Institute data reveal a total of 50 new exchange-traded funds coming to market during the entire year of 2005. With half the year left to go, the ETF universe is likely to keep expanding.

Rydex Investments added six currency-linked ETFs known as "CurrencyShares" to its growing roster. The ETFs are listed on the New York Stock Exchange and track the British Pound, Australian Dollar, Canadian Dollar, Mexican Peso, Swedish Krona and Swiss Franc.

Biotech and internet ETFs were introduced by Lisle, Ill.-based First Trust Advisors. The First Trust Biotechnology Index (FBT) is an equal dollar-weighted index that tracks the Amex Biotechnology index. The First Trust Dow Jones Internet Index (FDN) contains about 40 companies that generate 50 percent or more of their annual sales revenue from the Internet, have a three-month average market cap above $100 million and keep their share price above $10. Both funds have expense ratios of 0.60 percent.

In other news, State Street Global Advisors (SSgA) announced the launch of six industry-specific funds on the American Stock Exchange (Amex). All will have expense ratios of 0.35 percent and support trading in underlying options. Five will be SPDRs benchmarked to Standard & Poor's (S&P) Select Industry indices; the sixth will track KBW's Regional Bank index.

"At a time when investors are seeking new options in search of the potential for higher returns or more refined portfolio construction, these ETFs provide a real benefit through their precise exposure to targeted industries," explains Greg Ehret, senior managing director at SSgA. "Our ability to provide investment options that enable access to precise market segments underscores our ongoing commitment to the evolving needs of professional investors."

Each S&P Select Industry index is constructed with an equal-weighted methodology and is rebalanced quarterly. This rebalancing prevents one or two stocks from dominating the performance of the index. Meanwhile, the SSgA streetTRACKS KBW Regional Bank (KRE) fund holds regional banks and thrifts with market capitalizations ranging from $700 million to $10 billion and will compete with the unmanaged Merrill Lynch Regional Bank HOLDRs (RKH).

SSgA is the investment arm of State Street Corporation; at the end of March, the firm had about $90 billion in ETF assets under management worldwide.

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Ron L. DeLegge is editor of www.etfguide.com.

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